Of Imminent Defaults And Self Deception. Kyle Bass Prepares For The Worst
In his latest letter to LPs, Kyle Bass of Hayman Capital Management, offers his tell-tale clarity on what may lie ahead for Europe and Japan. With his over-arching thesis of debt saturation becoming more plain to see around every corner, Bass bundles the simple (and somewhat unarguable) facts of quantitative analysis with a qualitative perspective on the cruel self-deception that we all see and read every day about Europe.His Japanese scenario is no less convicted, as we have discussed a number of times, with the accelerant of this debt-bomb being the very-same European debacle and his time-frame for this is set to begin in the next few months.Whether it is Kahneman's "availability heuristic" (wherein participants assess the probability of an event based on whether relevant examples are cognitively "available"), the Pavlovian pro-cyclicality of thought, or the extraordinary delusions of groupthink, investors in today’s sovereign debt markets can't seem to envision the consequences of a default.
Global Bailout Surprise Twist Endings Presents: "Stocks Soar As Investors Bet On Gov't Rescue Plan"
First Black Friday, and now the Modern Finance Farce Company Surprise Twist Ending takes on the global bailout...How The U.S. Will Become A 3rd World Country (Part 1)
The United States is quickly becoming a post industrial neo-3rd-world country. Partly as a consequence of worsening unemployment and lack of economic opportunity, falling real wages and household incomes, growing poverty and increasing concentration of wealth, the U.S. government faces a historic fiscal crisis. Dominant corporate influence over the U.S. government, particularly by large banks, weakening rule of law at the federal level and destructive tax policies are compounding the economic problems facing the United States. Barring fundamental reforms or a hyperinflationary collapse of the U.S. dollar (due to the fiscal problems of the U.S. government), the deterioration of the U.S. economy will continue and accelerate. As the U.S. economy continues its decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate and the 3rd world status of the United States will become apparent.
Central Banks’ Latest Move Shows Desperation
11/30/2011 - 18:35
China Manufacturing Contracts As New Export Orders See Biggest 2 Month Drop Since Dec2008
UPDATE: HSBC China Manufacturing PMI prints at 47.7, deteriorating at fastest rate (and lowest level) in 32 Months
Suddenly this morning's RRR cut doesn't feel quite so much like China doing Europe a favor. Chinese Manufacturing PMI printed at a lower-than-expectations 49, signaling its first contraction (<50) since Feb 2009. As if it was really ever so, as clearly concerns were growing since we had the Flash PMIs earlier in the month. Across the board, sub-indices were weak with New Orders and New Export Orders falling significantly as the latter remains below 50 and Inventories rose significantly. Notably New Export Orders have now fallen the most over two months since Dec 2008.
Agriculture Probably The Best, Silver And Gold Perhaps Second Best
Admin at Jim Rogers Blog - 2 hours ago
"I suspect agriculture products would give better protection during the
next several years although gold and silver will be good too – perhaps
second best." - *in CNBC`s Investor Clinic*
*Tickers, SPDR Gold Trust ETF (GLD), iShares Silver Trust ETF (SLV),
ELEMENTS Rogers Intl Commodity Index - Agriculture Total Return ETN (RJA) *
*Jim Rogers is an author, financial commentator and successful
international investor. He has been frequently featured in Time, The New
York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The
Financial Times and is a regular guest on Bloomberg a... more »
11/30/2011 - 17:15
If
anyone is still confused by what has transpired today, here is Peter
Schiff explaining in simple words, why what happened "may be one of the
most important economic events of the year" and what to do next:
"Today’s unprecedented announcement by the world’s most powerful central
banks was a loud and clear bell ringing to buy precious metals. The
move, disguised as an attempt to help the fragile state of the global
economy, is in reality a move to prop up failing banks in Europe and the
US. By reducing interest rates paid for dollar swaps, central bankers
are in effect increasing the quantity of global dollars in circulation.
The result? The dollar will weaken, inflation will rise, and
gold will soar. Gold was up more than $30 today, and the dollar got
crushed. I urge you to take 7 minutes to watch the video I
recorded exclusively for my subscribers a few hours ago. It explains,
in plain language, what happened today – and what is the likely outcome
for your portfolio. This may be one of the most important economic
events of the year." And pardon Schiff's self-promotional piece at the
end, but the truth is that he is essentially correct about what the
actions means from a big picture perspective. Furthermore, as Goldman
made all too clear, this is merely the beginning as
more and more inflationary actions have to be undertaken by central
banks to save banks from being crushed by untenable debt loads. Whether
they succeed in overturning the deflationary tsunami is unknown. What
is certain is that they will bring fiat currencies to the verge of
viability (and beyond) in trying.
And
now it is time for our favorite monthly chart-only newsletter, The
PunchLine by Abe Gulkowitz, who unlike the momentum chasing crowd which
has an attention span measured in inverse significant digits, and has a
brokerage account (but endless monopoly money) that is even smaller
courtesy of always being on the receiving end of a market which actually
needs commission payments on both sides of those candle charts, sees
well behind the headlines designed to sucker in the feeble minded
twitter-traders, and presents it all with gorgeous, chartific clarity.
And the only thing better than the insight of his hand-picked charts is
the focus of his narrative, which speaks volumes without actually
speaking volumes: "European banks are dumping government debt, deposits
are draining from south European banks and a looming recession is
aggravating the pain, fuelling doubts about the survival of the single
currency in the European zone. Between the bookends of economic data
points, rating agency actions, and political developments - - market
gyrations are seriously affected by policy directions. A key
consideration for any 2012 forecast is the impact of public policy on
risk premiums and business confidence. Persistent fears of major policy
missteps could come to a head at any time regarding the U.S. fiscal
nightmare and Europe’s responses to the sovereign and banking crisis.
One now needs to believe that the policy environment – both in the US
and Europe – could serve as significant headwinds to growth in 2012."
Fast forward to 2:08: "It is puzzling to some that Major
General Zhang Zhaozhong, a professor from the Chinese National Defense
University, said China will not hesitate to protect Iran even with a
third World War... Professor Xia Ming: "Zhang Zhaozhong said that not
hesitating to fight a third world war would be entirely for domestic
political needs...." And don't forget Russia, which recently said it is preparing to 
Today's tremendous rally in equities was well supported by broad risk assets initially, but as financials took off this afternoon to end the month down only 4.8%, CONTEXT remained less exuberant.
The 6.2% rally in financial stocks today was not so evident in
corporate bond-land where we saw net-selling overall. Copper slipped
well off its highs of the day but ended very well as Oil was only able
to match USD weakness on the day while Gold and Silver outperformed
(with the former touching $1750). VIX was a popular topic as it
dropped below 30% but we note that implied correlation did not drop
from the open suggesting macro-hedges remained more bid than
underlying sentiment might suggest. IG credit outperformed (relatively
speaking) which seemed more a squeeze move into the month-end close but
HY's move was impressive as an early afternoon fade in HYG reverted to
end at its highs. Equities and Credit ended back at 11/14-15 levels
with IG and HY ahead of equity.
As
the central bankers and political leaders of the
'supposedly-developed' world sit back in their chaise-longues sipping
mojitos at a job-well-done for today's mindless rally on the back of a
slightly lower cost of funds in a facility that already existed but was
hardly utilized, perhaps they will cough a little at Nigel Farage's (the cantankerously correct MEP from The UK) comments today. Describing the process of 'bribing' Croatia to join the EU as a 'bent, corrupt, and distorted' effort,
he remarks that he has never seen this kind of pressure. It is
remarkable, he notes in an undeniably intelligent-sounding English
accent, that after only 20 years out of the former Yugoslavia, after such a long period of seeking independence, they are now voting to rejoin a 'new Yugoslavia' - a failing political experiment. Perhaps, Van Rompuy and friends would be better spending the money on more mojitos for their friends at the Fed and PBOC?
We 
Whether
its non-confirming volumeless rallies in stocks, hard-to-find
collateral, sovereign risk, counterparty risk, USD funding stress, GDP
growth dislocations, EM credit dispersion, or equity market
outperformance, Nomura's EEMEA FX and Fixed Income team has a little for
everyone in today's '10 Things We Did Not Know'. Today's
obvious risk-on knee-jerk-response rally is perhaps not so broadly
supported even as Ben's promise trumps a totally failed Grand Plan.
Equity
and Credit markets rallied significantly on the day with credit
catching up to equity's recent strength in an unusually biased move. The
higher beta XOver (high yield European credit) and Subordinated financial credit outperformed close to close but lags overall relative to equity and investment grade credit, suggesting less than stellar demand to lay out new risk and more likely shorts covering in a hurry.
Seniors underperformed Subs in financials - again suggesting some
covering on the SEN-SUB decompression trade on the back of the ratings
actions this week. Sovereign spread moves were actually largely unimpressive with spread curves flattening, some decompressing, and the fulcrum security BTPs, not exactly ripping across the curve.
We
talked about the total disconnect between US equities and the rest of
the global financial market on Monday morning. At the time, many market
participants commented that they had not seen this kind of disconnect
so broadly and how strange it was - and with reasonable volume (unusual
for an upswing). Well, now we have some details on what exactly was
said and done on Monday with the Fed decision, perhaps it is
clear that someone somewhere was tipped off that this was coming as the
rest of the world's risk assets leaked inexorably lower and US
equities hugely outperformed.
While
being caught short stocks in the face of the global Bernanke Put, or
long Chinese IPOs this year, it seems relative-value trades remain
preferential from a risk-reward perspective. That is of course unless
you are our old friend Whitney Tilson. The Anti-Tilson ETF (Long GMCR /
Short NFLX) is up 8% today and stands at an impressive +43% (lifetime
highs) in the 20 days since we recommended it. NFLX weakness this
morning attributed to Wedbush's 30% downside target downgrade.![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
